Moody's assigned an A2 rating to the proposed E300 million of senior notes issued by Costa Finance
S.A. that are unconditionally guaranteed by Carnival Corporation. Moody's also confirmed Carnival's A2 and Prime-1 ratings. The rating confirmation reflects Carnival's industry leading market share and margins, the strength of its brands, as well as the risks associated with its shipbuilding program and weakening global economic fundamentals. The rating outlook is stable.
Carnival will use the proceeds of this offering to repay bridge financing put in place to consummate the acquisition of the remaining 50 percent interest in
Costa Crociere from Airtours plc for $510 million and for working capital purposes. The cruise industry is expected to increase gross capacity by between 12-14 percent per annum through 2004. During this expansion period, the industry may experience yield pressures given the sensitivity of demand to pricing (as demonstrated in 2000) and as the new capacity is absorbed.
Carnival is best positioned to withstand any pricing pressure given its industry leading margins, and continuing emphasis on cost control. The rating confirmation incorporates the recent price weakness and expanding capacity within the cruise industry, as well as Carnival's own aggressive shipbuilding program. Carnival has firm orders for 16 new ships to be delivered between 2001 - 2005 for an aggregate cost of about $7 billion.
Moody's expects Carnival will be able to finance a substantial portion of these capital expenditures with cash flow from operations except in 2003-2004 when 10 ships are scheduled for delivery. Moody's expects the pace of earnings growth to exceed the pace of debt additions except during 2003-2004 when debt levels may rise at a slightly faster rate than earnings. Also, Moody's notes that year-end leverage may be overstated due to the timing difference between ship delivery and full year earnings.
Debt protection measures are expected to remain consistent with the current ratings. The rating outlook is stable given the company's ability to finance a large portion of its shipbuilding program with cash flow, as well as the positive early booking trends for 2001. Additionally Moody's expects the company to substantially moderate its
share repurchase activity.
Carnival Corporation, headquartered in Miami, Florida and its subsidiaries operates six brands under the names, Carnival Cruise Lines, Holland America Line, Costa, Windstar Cruises, Cunard Line and Seabourn Cruise Line. During the year ended November 30, 2000, Carnival's revenues were approximately $3.7 billion. - (Reuters)